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We propose a factor model to measure expected inflation and the inflation risk premium at different maturities that leverages two sets of market instruments, inflation swaps and inflation caps and floors. The model features time-varying long-term average inflation and variable inflation volatility and exploits the information contained in survey-based inflation forecasts to anchor the objective measures of expected inflation. Medium-term expected inflation was close to the ECB's "below, but close to" inflation aim of 2% from 2010 to 2014, it has since declined to a low in March 2020 and increased significantly in the second half of 2021, up by more than 2% from September 2021. The inflation risk premium, positive until 2014, has been negative since 2015 and reached a minimum after the outbreak of the pandemic to return to values close to zero in autumn 2021. The probability of inflation being negative over a 3-year horizon peaked above 50% in late 2014 and early 2020. The probability of exceeding the ECB's inflation aim has always been lower than 40%, with the exception of the 2011-12 period, until September 2021, after which it rose to very high values, exceeding 80% in December 2021.
